'Which came first, the chicken or the egg?': Singapore High Court upholds competence-competence where existence of arbitration agreement in dispute

In its recent decision in Malini Ventura v Knight Capital Pte Ltd & others [2015] SGHC 225, the Singapore High Court has dismissed an application made under s. 6(2) of the International Arbitration Act ("IAA") for an injunction to stay SIAC arbitration proceedings, made on the basis that there was no arbitration agreement in existence.  The Singapore High Court first outlined the correct approach to determine such issues and held that the Tribunal could determine the issue as a preliminary question of its own jurisdiction.  This case re-emphasises the Singapore courts adherence to the principle of competence-competence, such that the tribunal will be given the first say over questions regarding its jurisdiction.

Background

This application arose out of a SIAC arbitration commenced by the defendants against the plaintiff. The plaintiff allegedly entered into a guarantee (the "Guarantee") in respect of a third party's loan. The Guarantee contained an arbitration agreement which provided for SIAC arbitration in relation to any issue under it 'including any question regarding its existence, validity or termination'.  The third party borrower defaulted and the defendants made a call on the Guarantee which was not satisfied.  The defendants commenced SIAC arbitration proceedings against the plaintiff for non-payment.

The plaintiff argued that the signature on the Guarantee was not hers which meant that there was no valid arbitration agreement between the parties and, therefore, the Singapore courts, not the Tribunal (which had already been constituted), had jurisdiction to determine the existence of the arbitration agreement.

The plaintiff requested that the Tribunal stay proceedings and when the Tribunal refused to do so, the plaintiff commenced proceedings in court seeking a stay of the arbitration proceedings. In response, the defendants applied for the court proceedings to be stayed pending determination of the SIAC arbitration.

The parties' positions

The key issue for the court was determining the correct approach under s.6 of the IAA where the existence of an arbitration agreement is in dispute.

The plaintiff argued that the court was not bound to stay the arbitration proceedings under s. 6(2) of the IAA because the defendants had no standing as the plaintiff had never signed the arbitration agreement. This was an issue that could only be decided by the court after a full trial applying the usual civil standard of proof, as if there was no arbitration agreement between the parties, no tribunal could be constituted to decide the issue.

The defendants argued that in order to be satisfied that s. 6(2) applied, the Singapore High Court need only be satisfied on a prima facie basis that an arbitration agreement existed, in order to grant a stay.  For this reason, the defendant's position was that the Singapore High Court had no choice but to refer the question to the Tribunal for its decision, given that the Guarantee appeared to be signed by the Plaintiff.

The Singapore High Court's decision

The court considered whether, if the very existence of an arbitration agreement is in question, it is a matter for the arbitral tribunal or for the court.  In doing so, the Court considered the position under English law and the decision of the English High Court on the same issue in Nigel Peter Albon (trading as N A Carriage Co) v Naza Motor Trading Sdn Bhd and anor [2007] 2 All ER 1075.  In that case, the English High Court concluded that the wording of the English equivalent of s.6 IAA (section 9(1) of the Arbitration Act 1996) meant that the court had to decide whether or not there was enough evidence that an arbitration agreement had been concluded.  If it was not possible to resolve this issue on the available evidence at the time of the application, the court could not grant a mandatory stay under section 9(1) of the Arbitration Act (but separately, it was open to it to exercise its inherent jurisdiction to stay proceedings).

However, the court declined to take on board fully the English position on the basis that the English Arbitration Act differs in many significant ways to the IAA.  In particular, (a) the English Arbitration Act is not wholly based on (nor does it incorporate) the UNCITRAL Model Law, which strictly circumscribes court intervention in arbitral proceedings, (b) the English Arbitration Act deals with both domestic and international arbitration, whereas the IAA only deals with international arbitration; and (c) in England it possible for parties to contract out of a tribunal's ability to determine its own substantive jurisdiction, in favour of such matters being dealt with by the courts.

Instead, the court held that the preferred approach in Singapore is that the party applying for the stay of proceedings under s. 6(2) of the IAA need only show a prima facie case that the arbitration agreement was concluded.  If a prima facie case is made out, then the matter would be left to the arbitral tribunal to decide for itself.

In coming to this decision, the Singapore High Court cited Herbert Smith Freehills' partner Larry Shore's chapter "Commentary to the UNCITRAL Model Law" co-authored with Stavros L Brekoulakis in Concise International Arbitration which outlines the divergent approach adopted by national courts to the issue of competence-competence principles, and whether such questions of jurisdiction, arising from a dispute as to the existence of an arbitration agreement, should be decided by the national court or tribunal itself.

The court stressed that any discomfort arising from the fact that a tribunal has authority to determine its own jurisdiction and could therefore find that it had no authority to decide the issue if there was, in fact, no arbitration agreement, should be disregarded.  It stated that "having accepted and given effect to the principle of 'kompetenz-kompetenz' for so many years we must disregard that discomfort. Otherwise we may find ourselves drawing finer and finer distinctions between situations in which the principle applies and situations in which it does not."

On the facts of the case, the court was satisfied that a prima facie case had been made out as to the existence of the arbitration agreement.   The application for a stay of proceedings was therefore dismissed and the issue of jurisdiction was left for the Tribunal to determine.  

Comment

This case is a welcome confirmation of the application of the principle of competence-competence in circumstances where the existence of the arbitration agreement is in dispute.  It is now clear that parties wishing to challenge the existence of an arbitration agreement in Singapore should do so before the arbitral tribunal itself, unless there is very strong proof that no arbitration agreement exists.  In reaching its decision, the Singapore court has further reinforced its pro-arbitration stance and the policy of giving primacy to the arbitral tribunal.

For more information please contact Alastair Henderson, Partner, Daniel Waldek, Senior Associate or your usual Herbert Smith Freehills contact.